Appeal from the United States District Court for the District of Minnesota.
The opinion of the court was delivered by: Murphy, Circuit Judge.
Submitted: March 10, 2010
Before RILEY, Chief Judge,*fn1 JOHN R. GIBSON and MURPHY, Circuit Judges.
Appellant Bremer Bank (Bremer), the owner of an aircraft leased to and operated by Northwest Airlines Corporation (NWA), brought this action against John Hancock Life Insurance Company (Hancock), which represented a majority interest in the loan that furnished eighty percent of the purchase price of the aircraft, and U.S. Bank (USB). Bremer alleges that in the aftermath of NWA's bankruptcy filing, its equity in the aircraft and lease were improperly extinguished by USB, acting on Hancock's instructions. The district court*fn2 granted summary judgment to Hancock and USB and denied Bremer's motion for summary judgment on its contract claims. Bremer appeals. We affirm.
The subject aircraft, a Boeing 757-251 bearing U.S. Registration number N526US, was purchased over twenty years ago through a leveraged lease transaction shaping the parties' rights and obligations to each other. NWA, the lessee, is the only original participant in the transaction; the others changed over the years as interests were sold and divided. During the period relevant to this dispute, Bremer was the owner participant. The original owner participant acquired the aircraft in the name of a trust of which it was the sole beneficiary. The trust was managed by an owner trustee representing the owner participant's interests. The original owner participant paid twenty percent of the aircraft's purchase price and directed the original owner trustee to borrow the balance from an original loan participant, whose interest in the trust estate was represented by an indenture trustee and whose loan was evidenced by secured certificates. The secured certificates were refinanced, enabling others to obtain them and become loan participants as well.
During the relevant period here, Hancock was a loan participant, though not the only one. Hancock had a majority interest of certificate holders which enabled it to issue binding instructions to the indenture trustee regarding the exercise of remedies in the event of a default. The original owner trustee leased the aircraft to NWA and assigned the lease to the original indenture trustee, which was granted a first priority secured interest in the aircraft and lease. USB was both the owner trustee and the indenture trustee during the period relevant to this case.
NWA submitted lease payments to USB, which first distributed payments to the secured certificate holders in repayment of the debt, and then if funds remained to itself in its capacity as owner trustee. The secured certificate holders' debt was non-recourse as to Bremer, the owner participant. Hancock and the other secured certificate holders' debt was secured exclusively by the lease and by the aircraft itself. Bremer received the tax benefits of ownership. See 1 Ian Shrank & Arnold G. Gough, Jr., Equipment Leasing--Leveraged Leasing 2-20-25 (4th ed. 2009) (explaining mechanics of leveraged equipment leasing).
Several documents, including the indenture, memorialize the transaction (the operative documents). The indenture is the agreement between the owner trustee (USB) and the indenture trustee (also USB). It includes § 4.04(a), a so called "equity squeeze" clause regarding the exercise of remedies following a default:
If an [indenture] Event of Default shall have occurred and be continuing . . . the Indenture Trustee may exercise any or all of the rights and powers and pursue any and all of the remedies pursuant to this Article IV and, as a precondition thereto, in the event there shall have occurred and be continuing [any lease Event of Default], shall declare the Lease to be in default and concurrently exercise, as appropriate, any and all of the remedies pursuant to Section 15 of the Lease[.]
Section 15 of the lease states that upon the occurrence of an event of default, the lessor may declare the lease to be in default and then take possession of the aircraft, "sell, hold, operate, use, or lease the aircraft[,]" demand certain payments, rescind the lease, or "exercise any other right or remedy which may be available to it[.]"
On September 14, 2005, NWA filed for bankruptcy protection under 11 U.S.C. § 1101 et seq. The filing was an event of default as defined by the indenture and the lease. NWA was willing to continue operating the aircraft only under a lease with more favorable terms. On October 18, 2005, the bankruptcy court granted it permission to reject the lease without further court order and gave NWA forty five days to negotiate revised lease terms. One of Bremer's officers admitted in an e-mail message on October 27, 2005 that "[Hancock] know[s] we have no equity[,]" an acknowledgment that in light of NWA's bankruptcy the value of the aircraft no longer exceeded the balance of the secured debt. According to Hancock and USB, Bremer expressed no interest in negotiating with NWA, so Hancock moved to protect its own investment and restructure the lease.
NWA was entitled to a stay as to its aircraft leases after filing for bankruptcy.
11 U.S.C. § 362. There is a special exception to a § 362 stay for aircraft financiers, 11 U.S.C. § 1110, which compelled NWA either to cure the lease default or turn over possession of the aircraft to its creditors within sixty days of its bankruptcy filing. NWA and indenture trustee USB, acting on Hancock's instructions representing the lenders' interests, extended the stay through a series of stipulations pursuant to 11 U.S.C. § 1110(b). The stipulations, which were renewed several times to extend the stay through May 2006, ...